When Obama won the presidency, the economy was in free fall and many people hoped that his policies would be more like Clinton’s than Bush’s, returning us to a time of robust growth in job creation and market indices. As much as it may horrify Democrats and Republicans alike to hear this, his presidency may turn out to be more like Reagan’s than Clinton’s. For one thing, they’re the only presidents since World War II who have had to deal with a double digit misery index.
For decades before Reagan, economists generally agreed that there was a trade-off between inflation and unemployment. One could pump more money into the economy and stimulate spending and job creation, but pay the price of higher inflation. Or, conversely, one could fight inflation by limiting the growth of money and government spending but risk higher unemployment. Then, oil prices rose, simultaneously triggering price hikes at the same time that production costs shot up, making it harder for businesses to compete: suddenly, inflation AND unemployment were rising together.
High unemployment and high inflation alike make people miserable, so economists began to track the misery index, the sum of these two.
The reasons that Reagan and Obama had to deal with double-digit misery indices are similar. Both men had to deal with a faltering global economy (the catalyst in Reagan’s time was the oil-shock and in Obama’s was the financial crisis). Both managed to offend opponents who thought that their policies just made things worse.
In spite of offering a message of hope, things seemed to get worse under the charismatic Reagan. When he took office, the misery index was only 8.3 but by the second half of the following year, it was persistently above 10, staying at 10 or above for 14 months (peaking at 10.7). It was not until the middle of 1983 that the misery index fell below double-digits, and it continued to drop until, by the November of 1984 when he was re-elected, it had fallen to below 8. His vice-president, HW Bush, inherited an economy with a misery index roughly half of what it had been during its peak during Reagan’s tenure. Reagan inherited something bad, made it worse, and then left it far better.
Obama, too, seemed to have made a bad situation worse. Not only did unemployment jump when he took office, but the deficit soared to record levels. For him, the misery index peaked at only 10.2, but it did so in his first year. And even his supporters admitted that it persisted for too high for too long.
Most people now see the recession and unemployment in Reagan’s first term as unavoidable in the quest to drive out inflation. Had Reagan heeded the call of critics to adopt policies that lessened unemployment, he would have risked triggering inflation before it had been tamed.
Similarly, it is hard to see how Obama’s attempt to reduce the deficit during a recovery could have done anything other than risk triggering another recession. (And in fact, the bright David Cameron, Britain’s PM, has done just that, putting austerity ahead of full employment; Britain’s GDP growth in the fourth quarter of 2011 was 0.) Just as Reagan had to first deal with inflation and then unemployment, so did Obama have to deal first with unemployment and then the deficit, in spite of criticism from people who could only see what he was doing wrong.
Reagan was also seen as the man who brought back the country from excess. While everyone admitted that there needed to be some regulation and government spending, most felt like it had gone too far. The perception at the end of his term was that he’d given the economy a more solid foundation, less dependent on bad policies that hampered businesses and left everyone perpetually uneasy about inflation.
While conservatives seem perpetually convinced that a turn to the right will get us where we’re going (and liberals a turn to the left), in fact the moderates who swing elections realize that a country is as likely to run off the road in either direction.
Obama, like Reagan, is seen by his supporters as a man who brought back the country from excess. While everyone admits that corporations need some freedom to pursue policies disdained in DC and taxes would ideally be lower, many felt like deregulation and tax cuts had gone too far. If Obama manages to better regulate Wall St – and all of corporate America – while getting tax revenues back up, he’ll be seen as giving the economy a more solid foundation, less dependent on debt and bad policies that left businesses unaccountable and everyone perpetually uneasy about job loss and growing income inequality.
There are differences between the two, of course, but if this recovery continues it wouldn’t be surprising if Obama becomes a new model for future politicians on the art of using double-digit misery to promote substantial change.